Economic Survey • Economic developments in Norway • Forecasts 2018-2021 1/2018 Economic Survey 1/2018 Norwegian economy Economic developments in Norway The Norwegian economic downturn bottomed out just as falling housing investment and a stronger krone, over a year ago. According to preliminary seasonally that are exerting a countering effect. The upturn for the adjusted figures from the quarterly national accounts next few years is therefore likely to be a moderate one. (QNA), average quarterly mainland GDP growth through 2017 was 0.6 per cent. This is equivalent to an- Fiscal policy, which has been markedly expansionary nual growth of 2.6 per cent, which is somewhat higher since 2014, is shifting from expansionary to approxi- than estimated trend growth of just under 2 per cent. mately cyclically neutral. In the period from 2013 to Although growth has picked up globally and increased 2017, the increase in the structural, non-oil budget petroleum investment will boost the Norwegian econ- deficit (SNOBD) averaged just over NOK 20 billion omy going forward, there are also other impulses, such per year in 2018 money. However, figures from the Table 1. Main macroeconomic aggregates. Accounts figures. Change from previous period. Per cent Seasonally adjusted 2016* 2017* 17:1 17:2 17:3 17:4 Real economy Consumption by households etc. 1.5 2.3 0.7 0.8 0.6 0.8 General government consumption 2.1 2.0 0.6 0.5 0.7 0.5 Gross fixed capital formation -0.2 3.5 1.9 1.4 -0.9 1.6 Extraction and pipeline transport -16.9 -4.0 0.8 -0.1 -5.6 -1.0 Mainland Norway 6.1 5.9 2.7 1.3 0.3 2.0 Mainland demand1 2.6 3.0 1.1 0.8 0.6 1.0 Exports -1.8 0.8 -0.9 2.0 -0.8 -2.6 Traditional goods -8.2 2.2 6.8 1.7 0.9 0.7 Crude oil and natural gas 4.3 1.9 -1.8 4.1 0.3 -8.3 Imports 2.3 2.2 2.8 0.7 -3.3 3.2 Traditional goods -0.4 3.2 3.0 0.7 -1.7 2.6 Gross domestic product 1.1 1.8 -0.2 1.1 0.8 -0.3 Mainland Norway 1.0 1.8 0.6 0.6 0.7 0.6 Labour market Man-hours worked 0.7 0.3 0.2 0.2 0.5 0.6 Number employed 0.2 1.1 0.4 0.3 0.4 0.4 Labour force2 0.3 -0.4 -0.1 0.1 -0.2 0.3 Unemployment rate (level)2 4.7 4.2 4.3 4.3 4.1 4.1 Prices and wages Annual wages 1.7 2.3 .. .. .. .. Consumer price index (CPI)3 3.6 1.8 2.6 2.1 1.4 1.2 CPI adjusted for tax changes and excluding energy products (CPI-ATE)3 3.0 1.4 1.9 1.6 1.1 1.1 Export prices traditional goods 3.5 5.0 0.4 1.6 -1.0 2.3 Import prices traditional goods 1.4 3.7 1.2 2.5 -0.5 2.6 Balance of payments Current account balance. billions of NOK4 118.3 168.3 57.6 54.4 21.2 35.0 MEMO (unadjusted figures. levels) Money market rates (3-month NIBOR) 1.1 0.9 1.0 0.9 0.8 0.8 Lending rate. credit loans secured on dwellings5 2.6 2.6 2.6 2.6 2.6 2.6 Crude oil price in NOK6 378 445 461 433 414 473 Import-weighted krone exchange rate. 44 countries. 1995=100 105.4 104.6 102.7 106.0 103.6 106.0 NOK per euro 9.29 9.33 8.99 9.38 9.35 9.60 1 Consumption by households and non-profit organisations + general government consumption + gross mainland investment. 2 LFS figures 3 Percentage change from same period previous year 4 Current account not adjusted for saving in pension funds. 5 Average for the period. 6 Average spot price Brent Blend. Source: Statistics Norway and Norges Bank. Statistics Norway 1 Norwegian economy Economic Survey 1/2018 National Budget for 2018 indicate that SNOBD will Nor will the exchange rate have an equally expansion- increase by only NOK 6 billion from 2017 to 2018. The ary effect in the years ahead. The depreciation of the fiscal scope for manoeuvre appears likely to increase krone from 2014, in pace with the falling oil price, has appreciably less in the near term. This is implicit in the imparted positive impulses to the Norwegian economy. fact that fiscal policy will be approximately neutral on The krone has strengthened since the beginning of balance, as SNOBD as a share of trend mainland GDP is 2018, and we assume that it will continue to strengthen expected to remain almost constant through the projec- moderately for the next few years. The weakening of tion period. cost-competitiveness due to the appreciation of the krone will make the situation of exposed sector activi- ties less favourable and moderate the cyclical upturn. In Figure 1. Growth in mainland GDP and contributions from 2021, the last year of our projection period, we assume demand components.¹ Percentage points, annual rate that a euro will cost around NOK 9.0. 7 In contrast to many previous cyclical upturns, hous- ing market developments are now curbing the upturn. 5 House prices measured by Statistics Norway’s resale home price index began to fall in 2017 Q1. The fall has 3 been most pronounced in the Oslo area. That house prices have fallen is due first and foremost to the fact 1 that the supply of dwellings has been high, prices had reached a high level, wage growth has been moder- -1 ate and immigration has slowed. The Housing Loan Regulations may also have contributed to the reversal, -3 but it is on account of the aforementioned more fun- damental factors that we believe that house prices will -5 fall through most of 2018 as well. The fall will probably Q1 Q2 Q3 Q4 2018 2019 2020 2021 be modest, however. If our projections prove correct, 2017 2017 2017 2017 house prices at the end of 2018 will be just under 5 QNA figures Projection per cent lower than the peak in 2017 Q1. Falling house Exports² prices make residential construction less profitable, and Other mainland investment this is already reflected in lower housing investment. Housing investment We forecast that housing investment will remain virtu- Petroleum investment ally unchanged from 2019 onward. Given this scenario, the level of housing investment will be about 10 per General government consumption and investment cent lower in 2021 than at the peak in 2017. Consumption by households and non-profit org. Growth in mainland GDP Petroleum investment continued to fall throughout ¹ The demand contributions are calculated by finding the change in each 2017, but the decline in this investment appears to be variable, extracting the direct and indirect import shares, and then over for now. An improved global economic situation, dividing by the mainland GDP level for the previous period. The import lower investment prices and an oil price that fluctu- shares used are documented in Economic Survey 1/2018, Box 3. All figures are seasonally adjusted and in constant prices. ated around USD 65 per barrel this winter is making a ² The export variable is defined as total exports excluding exports of number of petroleum investments profitable. Operators crude oil, gas and shipping. on the Norwegian continental shelf are planning to Source: Statistics Norway. increase their investment by NOK 125 billion over the next few years, and a good portion of this increase will Table 2. Growth in mainland GDP and contributions from demand components.1 Percentage points, annual rate QNA Projection 17:1 17:2 17:3 17:4 2018 2019 2020 2021 Consumption by households and non-profit organisations 1.0 1.1 0.9 1.2 0.9 1.0 0.9 1.0 General government consumption and investment 0.7 2.0 -0.7 2.4 0.4 0.5 0.5 0.5 Petroleum investment 0.1 0.0 -0.8 -0.1 0.3 0.2 0.1 -0.1 Housing investment 0.6 0.2 0.3 -1.0 -0.4 -0.2 0.0 0.0 Other mainland investment 0.8 -0.6 1.1 0.2 0.3 0.2 0.1 0.1 Exports1 0.4 0.0 -1.2 1.1 0.6 0.6 0.7 0.5 Growth in mainland GDP 2.6 2.6 3.0 2.4 2.4 2.3 2.3 2.1 1 See footnotes to Figure 1. Source: Statistics Norway. 2 Statistics Norway Economic Survey 1/2018 Norwegian economy come about in 2018 already. Field developments and perspective, this must be regarded as close to a normal fields in operation are forecast to account for the bulk unemployment level. of the growth. The expected upswing in petroleum in- vestment in 2018 will be pronounced, but the increase, The participation rate has been falling in recent years. viewed in isolation, will only be strong enough to This trend can be ascribed partly to the ageing popula- neutralise the negative impulses of the fall in housing tion and partly to the economic downturn, which led investment in the projection period as a whole. to many people withdrawing from the labour market.